Bajaj Housing Finance: Unlocking Growth: Bajaj Housing Finance set for IPO as it eyes market expansion

Now, in these seven years, led by Atul, the team has actually built a high quality, but also a large book. As of first quarter, we are at 97,000 crore AUM, that makes us the largest non-deposit taking housing finance company in the country growing strongly.

And when you look at our own future capital requirements, this is a way for us to go and raise now money from the market, rather than looking back at the parent itself. There is also a second reason, which is given our size and being in the upper layer as per RBI classification, there is a requirement to list before September 2025. So, combination of those two factors is what has brought us to this IPO.

Bajaj Home Finance is growing at a rate of about 25% plus, that makes it almost double than that of the industry average. On this large base, can you maintain this kind of growth?
Atul Jain: So, the way we look at businesses, we do not get guided by a particular number. Of course, the numbers what you mentioned for the past are there in the public domain. We have grown in last three years CAGR of 31% or last five years at CAGR of 29%. We believe there is a sufficient or a very large market opportunity available in the mortgage space. The market is very large. Even to the size and the scale what we have reached, we remain a very small portion of the overall mortgage market, because mortgage market is the largest asset class in the country as far as retail space is concerned. Given our relative size, we will take the opportunistic view, whatever opportunity to grow is there, in the rightful balanced of a risk and return metric, in the segments which we feel appropriate, we will continue to grow, but not guided by a number, market is large and the market itself also continues to grow at 12-13%. For that size of a market to grow at that number also shows the robustness of the market. Various government initiatives are directed towards growing this market specifically through housing for all, because it comes as a corollary of housing for all, comes to the home loan market, which is the market which we operate in. Market keeps on growing, we keep on growing, not guided by a particular number.

If one really looks at the loan book of Bajaj Finance or home finance in this case, it is not present in Pradhan Mantri Housing Yojana. The presence in small towns is not there. Focus on large ticket, semi-urban, will that be the differentiating factor also going forward to maintain this growth?
Sanjiv Bajaj: So, this is Bajaj Housing Finance and distinct from Bajaj Finance, but where Bajaj Housing Finance leverages from the experience of Bajaj Finance in the past is how do you thoughtfully over a period of time enter all the relevant portions of the market.

So, the most obvious portions to enter were the prime space with salaried customers, big towns because the volume was there so economies of scale were there.

From there we went into lap, we went into developer financing so that you participate in the entire value chain in the mortgage space.

We now last year created a separate team to get into affordable housing finance as well. So, we will participate in each of these spaces and when we participate we are also very conscious of the fact that this to the individual customer is probably his or hers largest value loan. So, they are very sensitive to who they are dealing with, they are sensitive not only to pricing but to the entire experience and their needs also differ. So, if you look at large markets whether it is Delhi, NCR, whether it is Mumbai, we built capabilities at a micro market level. So, what you will see over a period of time is not just a one colour suits all way of building this business, but with a lot more micro related action.

So, to your question you will see us in each of these lines of business, but we will build it up gradually as we understand those customer segments, we understand those micro geographies, we build the necessary teams, we build the tech capabilities that have differentiated us for so long and then we get into that market.

As per the listing requirement, the shareholding needs to come down by additional 15% more and needs to go to 75% in the next three years. So, are we looking at perhaps more supply coming for the issue of Bajaj Housing Finance?
Sanjiv Bajaj: Even what you see in our capital raise at this time, it is a combination of primary and offer for sale and this balance is driven by one, the housing finance company, the amount of capital it needs for the next few years, but also the fact that too much of capital can end up depressing ratios.

So, we have tried to balance that out and the rest of it goes to Bajaj Finance who have been the only shareholder so far, so they get to monetise some of their holding as well and we will follow that same balance going forward.
So, it will be first driven by the capital that housing finance gets and the rest of it will then be OFS that Bajaj Finance will do to meet the regulatory requirements.

Everybody wants to be like you. Why do you want to be like others? You are role model for everybody.
Sanjiv Bajaj: Because you have to try to get even better and that is why my answer was that with a very high respect for what HDFC did in the past multiple decades is what would be the future HDFC. So, not the HDFC of the past, but how should a housing finance company evolve in the coming years, that is what we aspire to be and hopefully build excellence around that.

HDFC Limited ultimately got merged with HDFC Bank. So, are you saying that that is how you started thinking 5 years, 10 years?
Sanjiv Bajaj: Well, we are focused right now on excellence to our customers and to our stakeholders.

The HFC space is a brutally comparative market. You have got public sector banks which in a sense are out with rates which are very disruptive. Technology which was an advantage is perhaps now becoming more like a common link. So, my question to you is that why is Bajaj Home Finance growing at a rate which is double that of the industry on this kind of a large base? Are you taking more risk? Do you understand your customers more? What is that secret sauce?
Sanjiv Bajaj: Well, that is a secret sauce and the key word there is secret. And no, if you were taking disproportionately higher risk, it will show up in our numbers. But what you are seeing is, again, industry leading low, GNPAs and net NPAs as well.

Technology for technology sake is meaningless. But using technology to better understand the customer, to be able to access the customer quicker, to be able to complete the loan process faster than somebody else, because rates are by and large the same, as you said, so that is where technology makes a difference.

Technology as it helps us in our processes, in our risk assessment, in our debt management capabilities. In each of these areas, we use technology very effectively.

Variabilization of our entire technology infrastructure running on the cloud, each of these make a very big difference in operating costs. Because we are talking of after all a business where your spreads are very narrow. So, every 5 basis points that you save ends up going to the bottom line.

But one of the avatars, which in a sense is evident the way we look at Bajaj Finserv is moving to be a platform company, it has got platforms which are getting incubated, it has got platforms which are small but now become very-very large and relevant. So, do you think Bajaj Finance, in a sense, we will talk about Bajaj Finance in 2030, it would really be a platform company, it would be a traditional company which is going the fintech way?
Sanjiv Bajaj: Why should we look at 2030, look at Bajaj Finance today, our app has over 60 million users. We add over 10 million a year. In the last six years, we have added 24 million Indians who have entered the formal financial cycle for the first time, which means moving them away from the unscrupulous money lenders into a more institutionalised space.

So, we can see Bajaj Finance, and in addition to that Bajaj Housing Finance, already leveraging the digital platforms that are available.

And our presence is omni-channel or we call it phygital, it goes from physical to digital. So, there are 130,000 stores around the country where you can enter, you can look at a particular product, you can go to a new housing project, look at a particular apartment, and from then onwards your entire process becomes digital with us.

And leveraging the best of the physical and digital world is what is helping us create this omnipresence platform. And when we say we operate both in the physical and digital world, what it means is that you can move seamlessly across these spaces in your interaction with us. And the app and the web that you use shows that as well and the better that we get at this allows us to become more and more of a financial enabling platform.

And looking at your understanding of the economy and I am talking about the medium term, are you feeling reasonably confident that the growth rate what you have reported in the past is here to stay?
Sanjiv Bajaj: Let us look at the larger economy in the past decade, decade-and-a-half. When I look at the next decade, decade-and-a-half, I believe that we will see or we have the opportunity to grow even faster. The government has demonstrated over the last decade not only its intent but in action and India of today is a very different place than India of 10 years ago, even 15 years ago, through multiple governments I would say. And as long as we continue to see that and from the intent of the government, there is no difference. I expect that for businesses and for good quality businesses focused on the long term, the sky is really the limit.